Cost and Management Audit · Companies (Cost Records and Audit) Rules, 2014

Section 148 of Companies Act 2013: Cost Records and Applicability

Updated 11 October 2026 · Fact-checked

Section 148 lets the Central Government order certain classes of companies to keep cost records and, if it thinks necessary, to get those records audited by a cost accountant. The Companies (Cost Records and Audit) Rules, 2014 fix which companies, goods and services are covered. To solve questions, test each condition step by step.

Understand Section 148 and Applicability of Cost Records

Section 148 is the legal source of cost records and cost audit in India. It does not apply to every company by itself. The Central Government must first act through an order or rules. The Rules then say which companies, producing which goods or services, must comply.

There are two separate layers. Under section 148(1), the Central Government may direct a class of companies, engaged in producing prescribed goods or providing prescribed services, to include particulars of utilisation of material or labour, or other prescribed items of cost, in their books of account. This is the cost records layer. If the class is regulated under a special Act, the Government must first consult the regulator.

Under section 148(2), if the Government thinks it necessary, it may direct that the audit of cost records of companies covered by sub-section (1) be conducted. This applies only to companies having a prescribed net worth or a prescribed turnover. This is the cost audit layer. So a company can be required to keep cost records without being required to get them audited.

The audit is done by a cost accountant, appointed by the Board. The members decide the remuneration in the prescribed manner. A person appointed as company auditor under section 139 cannot be appointed for the cost audit. The cost auditor must follow the cost auditing standards issued by the Institute of Cost Accountants of India with Central Government approval. The cost audit is in addition to the audit under section 143.

The exact thresholds, the list of goods and services, and the exemptions sit in the Rules, not in the section. In the exam, quote the section for the power and the Rules for the numbers. If you are unsure of a threshold, state the structure of the test and work it through the figures given in the question.

Key rules to remember

Cost records power: Section 148(1): order for a class of companies + prescribed goods or services → cost items included in books of account; The Central Government must consult the regulator first if the class is regulated under a special Act.
Cost audit power: Section 148(2): covered under (1) + prescribed net worth or turnover + Government's opinion that audit is necessary → audit of cost records; Cost audit is narrower than cost records. Not every company keeping cost records is audited.
Appointment: Section 148(3): cost accountant appointed by the Board; remuneration determined by members in the prescribed manner; A section 139 auditor of the company cannot be appointed as cost auditor.
Standards: Section 148(3) second proviso: cost auditor must comply with cost auditing standards issued by the Institute of Cost Accountants of India with Central Government approval; Link this to the Standards on Cost Auditing.
Relationship with statutory audit: Section 148(4): cost audit is in addition to the audit under section 143; It never replaces the statutory audit.
Report and filing: Section 148(5)-(6): report goes to the Board of Directors; company furnishes the report to the Central Government within 30 days of receiving a copy, with full information and explanation on every reservation or qualification; The 30 days run from the company's receipt of the report copy.
Default: Section 148(8): company and officers in default are punishable as per section 147(1); the cost auditor in default as per section 147(2) to (4); Penalty amounts are in section 147, not section 148.

How to solve Section 148 and Applicability of Cost Records questions

Use this order for any question on section 148 and applicability. It keeps the legal power separate from the Rules and stops you mixing cost records with cost audit.

1Identify what is asked: the power of the Government, who must keep cost records, who must get a cost audit, or the procedure after appointment.
2State the source: section 148 gives the power, and the Companies (Cost Records and Audit) Rules, 2014 give the details.
3Test the cost records layer first: is the company in a class, and does it produce the prescribed goods or services?
4Then test the cost audit layer: is the company covered by the first layer, and does it meet the prescribed net worth or turnover condition? Use the figures in the question.
5Check exemptions and special cases given in the Rules or in the question, such as a regulated sector.
6If the question covers appointment, apply section 148(3): Board appoints, members fix remuneration, no section 139 auditor, standards to be followed.
7Close with the consequence: report to the Board, filing with the Government within 30 days of receipt, and penalty under section 147 for default.
8Give a clear conclusion in one line: records only, records and audit, or neither.

Quickest way: Two-gate test

When to use it: Use this for short applicability questions and case-based MCQs where you must decide whether a company must keep cost records or get a cost audit.

Gate 1 (cost records): Is the company in a class covered by the Rules and engaged in prescribed goods or services? If no, stop: no cost records requirement from this test.
Gate 2 (cost audit): Passing gate 1, does it meet the prescribed net worth or turnover limit? If no, records only.
If yes at both gates, cost audit applies, subject to any exemption in the Rules.
For any appointment option in an MCQ, reject it if it names the company's section 139 auditor or says the cost audit replaces the statutory audit.

Common mistakes in Section 148 and Applicability of Cost Records

Saying every company must get a cost audit under section 148.
Students read section 148 as a general rule and forget it works through orders and Rules.
Fix: Write that the Central Government must direct a class of companies, and that cost audit needs both coverage under sub-section (1) and the prescribed net worth or turnover.
Treating cost records and cost audit as the same thing.
Both are in one section and both use the word cost.
Fix: Keep two layers. Sub-section (1) is about records in books of account. Sub-section (2) is about auditing them.
Appointing the company's statutory auditor as cost auditor.
Students assume one firm can do both to save cost.
Fix: Remember the first proviso to section 148(3): a person appointed under section 139 as auditor cannot be appointed for cost audit. The cost auditor must be a cost accountant.
Saying the cost audit report goes directly to the Central Government from the auditor.
Students mix up the auditor's duty with the company's filing duty.
Fix: The auditor submits the report to the Board. The company then furnishes it to the Central Government within thirty days of receiving a copy, with explanations on every reservation or qualification.
Saying cost audit replaces the audit under section 143.
Both are audits, so students assume one covers the other.
Fix: Quote section 148(4): cost audit is in addition to the section 143 audit.
Quoting thresholds from memory without checking the question's figures.
Students rely on remembered numbers that may be mixed with older rules.
Fix: Take the limits from the Rules as prescribed and apply them to the figures given. Show the comparison clearly so marks are earned for method.

Worked examples

Example 1

Priya Textiles Ltd belongs to a class of companies for which the Central Government has ordered cost records to be kept. The directors say that, as a result, a cost audit is automatically required. Examine whether this is correct under section 148.

Show the solution

Section 148(1) allows the Government to direct a class of companies producing prescribed goods or services to include cost items in their books of account. This is the cost records requirement.
Section 148(2) is separate. The Government may direct audit of cost records only if it considers it necessary, and only for companies covered under (1) which have a prescribed net worth or turnover.
So being covered by sub-section (1) does not by itself lead to an audit. The company must also meet the net worth or turnover condition and the Government's direction must apply.
Therefore the directors' view is incomplete.

Answer: The view is not correct. Cost records under section 148(1) and cost audit under section 148(2) are separate. Priya Textiles must keep cost records, but it needs a cost audit only if it also meets the prescribed net worth or turnover condition and is covered by the audit direction.

Example 2

The Board of Sharma Cements Ltd, which is subject to cost audit, proposes to appoint its statutory auditor, a chartered accountant firm appointed under section 139, as cost auditor to save fees. The cost audit report will be sent by the cost auditor directly to the Central Government. Comment on both proposals.

Show the solution

Appointment: section 148(3) says the cost audit is conducted by a cost accountant appointed by the Board. The first proviso says a person appointed under section 139 as auditor of the company cannot be appointed for cost audit.
So the statutory auditor cannot be the cost auditor. The Board must appoint a separate cost accountant, and members determine the remuneration in the prescribed manner.
Report: the proviso to section 148(5) says the cost auditor submits the report to the Board of Directors.
Under section 148(6), the company, not the auditor, furnishes the report to the Central Government within thirty days of receiving a copy, with full information and explanation on every reservation or qualification.
Cost audit is also in addition to the section 143 audit, so it cannot be merged into the statutory audit.

Answer: Both proposals are wrong. The section 139 statutory auditor cannot be appointed as cost auditor; a separate cost accountant must be appointed by the Board. The cost auditor reports to the Board, and the company furnishes the report to the Central Government within thirty days of receiving its copy.

Exam tips

In theory answers, name the sub-section: (1) records, (2) audit, (3) appointment, (4) in addition to section 143, (5) report to Board, (6) filing within 30 days, (8) default.
For applicability cases, show the two-gate test in writing, with the figures compared against the limits, then a one-line conclusion.
In MCQs, watch for traps: statutory auditor as cost auditor, report sent directly to the Government, and cost audit replacing the section 143 audit.
Do not quote penalty amounts under section 148. Say the penalty follows section 147 and give the sub-section split for company and cost auditor.
Revise this topic with the Rules on cost records, appointment and the report, since questions often combine them in one case.

Practice questions from Companies (Cost Records and Audit) Rules, 2014

Section 148 and Applicability of Cost Records in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Section 148 and Applicability of Cost Records: frequently asked questions

What does Section 148 of the Companies Act, 2013 say in simple words?

It allows the Central Government to require certain classes of companies to keep cost records. It can also order a cost audit of those records for companies above a prescribed net worth or turnover. The audit is done by a cost accountant.

Is every company required to maintain cost records under section 148?

No. Only companies in a class directed by the Central Government, engaged in the prescribed goods or services, must do so. The Companies (Cost Records and Audit) Rules, 2014 give the details.

Who appoints the cost auditor and who fixes the remuneration?

The Board appoints the cost accountant. The remuneration is determined by the members in the prescribed manner. A person appointed as the company's auditor under section 139 cannot be appointed as cost auditor.

Is cost audit a replacement for statutory audit?

No. Section 148(4) says the cost audit is in addition to the audit under section 143. Both can apply to the same company.

Within what time must the company send the cost audit report to the Government?

The company must furnish it within thirty days from the date of receipt of a copy of the report, along with full information and explanation on every reservation or qualification in it.